The SOFR Discount *

78 Pages Posted: 12 Jul 2022 Last revised: 7 Jun 2024

See all articles by Sven Klingler

Sven Klingler

BI Norwegian Business School

Olav Syrstad

BI Norwegian Business School

Date Written: February 2, 2024

Abstract

The transition from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) affects the reference rate of floating-rate debt worth trillions of dollars. We provide the first evidence highlighting a benefit of the benchmark transition for debt markets. Focusing on the primary market for dollar-denominated floating rate notes (FRNs), we compare the issuance spreads of FRNs linked to LIBOR and SOFR, issued by the same entity during the same month. After adjusting for the maturity-matched spreads from derivatives markets, we find significantly lower spreads for SOFR-linked FRNs. We link this SOFR discount to the enhanced price stability of SOFR-linked FRNs.

Keywords: Benchmark rates, floating rates, financial regulation, LIBOR, SOFR JEL: E43, G12, G18, G29

JEL Classification: E43, G12, G18, G29

Suggested Citation

Klingler, Sven and Syrstad, Olav, The SOFR Discount * (February 2, 2024). Available at SSRN: https://ssrn.com/abstract=4150729 or http://dx.doi.org/10.2139/ssrn.4150729

Sven Klingler (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Olav Syrstad

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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